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Loans and Allowance for Loan Losses | 9 Months Ended
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Sep. 30, 2018
Loans and Allowance for Loan Losses [Abstract] |
Loans and Allowance for Loan Losses | NOTE 4 – Loans and Allowance for Loan Losses The following table summarizes the composition of our loan portfolio. Total gross loans are recorded net of deferred loan fees and costs, which totaled $2.8 million as of September 30, 2018 and $2.3 million as of December 31, 2017.
|  | Septe mber 30, 2018 |  | December 31, 2017
(dollars in thousands) |  |  | Amount |  | % of Total |  | Amount |  | % of Total
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 372,120 |  |  | 23.0 | % |  | $ | 316,818 |  |  | 22.8 | %
Non-owner occupied RE |  |  | 399,166 |  |  | 24.6 | % |  |  | 312,798 |  |  | 22.6 | %
Construction |  |  | 68,415 |  |  | 4.2 | % |  |  | 51,179 |  |  | 3.7 | %
Business |  |  | 244,348 |  |  | 15.1 | % |  |  | 226,158 |  |  | 16.3 | %
Total commercial loans |  |  | 1,084,049 |  |  | 66.9 | % |  |  | 906,953 |  |  | 65.4 | %
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 311,271 |  |  | 19.2 | % |  |  | 273,050 |  |  | 19.7 | %
Home equity |  |  | 163,654 |  |  | 10.1 | % |  |  | 156,141 |  |  | 11.3 | %
Construction |  |  | 38,015 |  |  | 2.4 | % |  |  | 28,351 |  |  | 2.0 | %
Other |  |  | 23,212 |  |  | 1.4 | % |  |  | 22,575 |  |  | 1.6 | %
Total consumer loans |  |  | 536,152 |  |  | 33.1 | % |  |  | 480,117 |  |  | 34.6 | %
Total gross loans, net of deferred fees |  |  | 1,620,201 |  |  | 100.0 | % |  |  | 1,387,070 |  |  | 100.0 | %
Less—allowance for loan losses |  |  | (16,140 | ) |  |  |  |  |  | (15,523 | ) |  |  |
Total loans, net |  | $ | 1,604,061 |  |  |  |  |  | $ | 1,371,547 |  |  |  |
Maturities and Sensitivity of Loans to Changes in Interest Rates The information in the following tables summarizes the loan maturity distribution by type and related interest rate characteristics based on the contractual maturities of individual loans, including loans which may be subject to renewal at their contractual maturity. Renewal of such loans is subject to review and credit approval, as well as modification of terms upon maturity. Actual repayments of loans may differ from the maturities reflected below, because borrowers have the right to prepay obligations with or without prepayment penalties.
|  | September 30, 2018
|  |  |  |  | After one |  |  |  |  |
|  | One year |  | but within |  | After five |  |  |
(dollars in thousands) |  | or less |  | five years |  | years |  | Total
Commercial |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 25,962 |  | 164,564 |  | 181,594 |  |  | 372,120
Non-owner occupied RE |  |  | 35,003 |  | 213,384 |  | 150,779 |  |  | 399,166
Construction |  |  | 19,455 |  | 26,137 |  | 22,823 |  |  | 68,415
Business |  |  | 74,091 |  | 124,489 |  | 45,768 |  |  | 244,348
Total commercial loans |  |  | 154,511 |  | 528,574 |  | 400,964 |  |  | 1,084,049
Consumer |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 37,128 |  | 67,254 |  | 206,889 |  |  | 311,271
Home equity |  |  | 11,097 |  | 25,556 |  | 127,001 |  |  | 163,654
Construction |  |  | 20,006 |  | 887 |  | 17,122 |  |  | 38,015
Other |  |  | 7,961 |  | 10,714 |  | 4,537 |  |  | 23,212
Total consumer loans |  |  | 76,192 |  | 104,411 |  | 355,549 |  |  | 536,152
Total gross loans, net of deferred fees |  | $ | 230,703 |  | 632,985 |  | 756,513 |  |  | 1,620,201
Loans maturing after one year with: |  |  |  |  |  |  |  |  |  |
Fixed interest rates |  |  |  |  |  |  |  |  | $ | 1,056,262
Floating interest rates |  |  |  |  |  |  |  |  |  | 333,236
|  | December 31, 2017
|  |  |  |  | After one |  |  |  |  |
|  | One year |  | but within |  | After five |  |  |
(dollars in thousands) |  | or less |  | five years |  | years |  | Total
Commercial |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 24,171 |  | 167,425 |  | 125,222 |  |  | 316,818
Non-owner occupied RE |  |  | 39,519 |  | 165,764 |  | 107,515 |  |  | 312,798
Construction |  |  | 13,086 |  | 12,796 |  | 25,297 |  |  | 51,179
Business |  |  | 73,588 |  | 107,584 |  | 44,986 |  |  | 226,158
Total commercial loans |  |  | 150,364 |  | 453,569 |  | 303,020 |  |  | 906,953
Consumer |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 30,172 |  | 61,809 |  | 181,069 |  |  | 273,050
Home equity |  |  | 13,331 |  | 25,807 |  | 117,003 |  |  | 156,141
Construction |  |  | 14,943 |  | 1,737 |  | 11,671 |  |  | 28,351
Other |  |  | 7,203 |  | 11,371 |  | 4,001 |  |  | 22,575
Total consumer |  |  | 65,649 |  | 100,724 |  | 313,744 |  |  | 480,117
Total gross loan, net of deferred fees |  | $ | 216,013 |  | 554,293 |  | 616,764 |  |  | 1,387,070
Loans maturing after one year with: |  |  |  |  |  |  |  |  |  |
Fixed interest rates |  |  |  |  |  |  |  |  | $ | 875,991
Floating interest rates |  |  |  |  |  |  |  |  |  | 295,066
Portfolio Segment Methodology Commercial Commercial loans are assessed for estimated losses by grading each loan using various risk factors identified through periodic reviews. The Company applies historic grade-specific loss factors to each loan class. In the development of statistically derived loan grade loss factors, the Company observes historical losses over 20 quarters for each loan grade. These loss estimates are adjusted as appropriate based on additional analysis of external loss data or other risks identified from current economic conditions and credit quality trends. The allowance also includes an amount for the estimated impairment on nonaccrual commercial loans and commercial loans modified in a troubled debt restructuring (“TDR”), whether on accrual or nonaccrual status. Consumer For consumer loans, the Company determines the allowance on a collective basis utilizing historical losses over 20 quarters to represent its best estimate of inherent loss. The Company pools loans, generally by loan class with similar risk characteristics. The allowance also includes an amount for the estimated impairment on nonaccrual consumer loans and consumer loans modified in a TDR, whether on accrual or nonaccrual status. Credit Quality Indicators Commercial We manage a consistent process for assessing commercial loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. Our risk categories include Pass, Special Mention, Substandard, and Doubtful, each of which is defined by our banking regulatory agencies. Delinquency statistics are also an important indicator of credit quality in the establishment of our allowance for loan losses. We categorize our loans into risk categories based on relevant information about the ability of the borrower to service their debt such as current financial information, historical payment experience, credit documentation, public information, and current economic trends, among other factors. A description of the general characteristics of the risk grades is as follows:
● | Pass—These loans range from minimal credit risk to average credit risk; however, still have acceptable credit risk.
● | Special mention—A special mention loan has potential weaknesses that deserve management’s close attention. If left uncorrected, these potential weaknesses may result in deterioration of the repayment prospects for the loan or the institution’s credit position at some future date.
● | Substandard—A substandard loan is inadequately protected by the current sound worth and paying capacity of the obligor or of the collateral pledged, if any. Loans so classified must have a well-defined weakness, or weaknesses, that may jeopardize the liquidation of the debt. A substandard loan is characterized by the distinct possibility that the Bank will sustain some loss if the deficiencies are not corrected.
● | Doubtful—A doubtful loan has all of the weaknesses inherent in one classified as substandard with the added characteristic that the weaknesses make collection or liquidation in full, on the basis of the currently existing facts, conditions and values, highly questionable and improbable.
The tables below provide a breakdown of outstanding commercial loans by risk category.
|  | September 30, 2018
|  | Owner |  | Non-owner |  |  |  |  |  |
(dollars in thousands) |  | occupied RE |  | occupied RE |  | Construction |  | Business |  | Total
Pass |  | $ | 368,266 |  | 394,880 |  | 68,415 |  | 238,167 |  | 1,069,728
Special mention |  |  | 725 |  | 121 |  | - |  | 3,033 |  | 3,879
Substandard |  |  | 3,129 |  | 4,165 |  | - |  | 3,148 |  | 10,442
Doubtful |  |  | - |  | - |  | - |  | - |  | -
|  | $ | 372,120 |  | 399,166 |  | 68,415 |  | 244,348 |  | 1,084,049
| December 31, 2017
|  | Owner |  | Non-owner |  |  |  |  |  |
|  | occupied RE |  | occupied RE |  | Construction |  | Business |  | Total
Pass |  | $ | 312,628 |  | 306,965 |  | 51,179 |  | 215,729 |  | 886,501
Special mention |  |  | 1,770 |  | 2,082 |  | - |  | 5,540 |  | 9,392
Substandard |  |  | 2,420 |  | 3,751 |  | - |  | 4,889 |  | 11,060
Doubtful |  |  | - |  | - |  | - |  | - |  | -
|  | $ | 316,818 |  | 312,798 |  | 51,179 |  | 226,158 |  | 906,953
The following tables provide past due information for outstanding commercial loans and include loans on nonaccrual status as well as accruing TDRs.
|  | September 30, 2018
|  | Owner |  | Non-owner |  |  |  |  |  |
(dollars in thousands) |  | occupied RE |  | occupied RE |  | Construction |  | Business |  | Total
Current |  | $ | 372,120 |  | 398,973 |  | 68,415 |  | 244,246 |  | 1,083,754
30-59 days past due |  |  | - |  | - |  | - |  | 13 |  | 13
60-89 days past due |  |  | - |  | - |  | - |  | - |  | -
Greater than 90 Days |  |  | - |  | 193 |  | - |  | 89 |  | 282
|  | $ | 372,120 |  | 399,166 |  | 68,415 |  | 244,348 |  | 1,084,049
| December 31, 2017
|  | Owner |  | Non-owner |  |  |  |  |  |
|  | occupied RE |  | occupied RE |  | Construction |  | Business |  | Total
Current |  | $ | 316,818 |  | 312,477 |  | 51,179 |  | 224,861 |  | 905,335
30-59 days past due |  |  | - |  | 129 |  | - |  | 416 |  | 545
60-89 days past due |  |  | - |  | - |  | - |  | - |  | -
Greater than 90 Days |  |  | - |  | 192 |  | - |  | 881 |  | 1,073
|  | $ | 316,818 |  | 312,798 |  | 51,179 |  | 226,158 |  | 906,953
Consumer The Company manages a consistent process for assessing consumer loan credit quality by monitoring its loan grading trends and past due statistics. All loans are subject to individual risk assessment. The Company’s categories include Pass, Special Mention, Substandard, and Doubtful, which are defined above. Delinquency statistics are also an important indicator of credit quality in the establishment of the allowance for loan losses. The tables below provide a breakdown of outstanding consumer loans by risk category.
|  | September 30, 2018
(dollars in thousands) |  | Real estate |  | Home equity |  | Construction |  | Other |  | Total
Pass |  | $ | 305,496 |  | 160,544 |  | 38,015 |  | 22,999 |  | 527,054
Special mention |  |  | 1,886 |  | 526 |  | - |  | 156 |  | 2,568
Substandard |  |  | 3,889 |  | 2,584 |  | - |  | 57 |  | 6,530
Doubtful |  |  | - |  | - |  | - |  | - |  | -
|  | $ | 311,271 |  | 163,654 |  | 38,015 |  | 23,212 |  | 536,152
|  | December 31, 2017
|  | Real estate |  | Home equity |  | Construction |  | Other |  | Total
Pass |  | $ | 269,422 |  | 152,545 |  | 28,351 |  | 22,367 |  | 472,685
Special mention |  |  | 715 |  | 1,025 |  | - |  | 88 |  | 1,828
Substandard |  |  | 2,913 |  | 2,571 |  | - |  | 120 |  | 5,604
Doubtful |  |  | - |  | - |  | - |  | - |  | -
|  | $ | 273,050 |  | 156,141 |  | 28,351 |  | 22,575 |  | 480,117
The following tables provide past due information for outstanding consumer loans and include loans on nonaccrual status as well as accruing TDRs.
|  | September 30, 2018
(dollars in thousands) |  | Real estate |  | Home equity |  | Construction |  | Other |  | Total
Current |  | $ | 310,665 |  | 163,309 |  | 38,015 |  | 23,082 |  | 535,071
30-59 days past due |  |  | 249 |  | 345 |  | - |  | 55 |  | 649
60-89 days past due |  |  | 357 |  | - |  | - |  | 75 |  | 432
Greater than 90 Days |  |  | - |  | - |  | - |  | - |  | -
|  | $ | 311,271 |  | 163,654 |  | 38,015 |  | 23,212 |  | 536,152
|  | December 31, 2017
|  | Real estate |  | Home equity |  | Construction |  | Other |  | Total
Current |  | $ | 271,284 |  | 154,821 |  | 28,351 |  | 22,506 |  | 476,962
30-59 days past due |  |  | 681 |  | 325 |  | - |  | 69 |  | 1,075
60-89 days past due |  |  | 131 |  | 995 |  | - |  | - |  | 1,126
Greater than 90 Days |  |  | 954 |  | - |  | - |  | - |  | 954
|  | $ | 273,050 |  | 156,141 |  | 28,351 |  | 22,575 |  | 480,117
As of September 30, 2018 and December 31, 2017, total loans 30 days or more past due represented 0.08% and 0.34% of the Company’s total loan portfolio, respectively. Commercial loans 30 days or more past due were 0.02% and 0.12% of the Company’s total loan portfolio as of September 30, 2018 and December 31, 2017, respectively. As of September 30, 2018 and December 31, 2017, consumer loans 30 days or more past due were 0.07% and 0.23% of total loans, respectively. Nonperforming assets The following table shows the nonperforming assets and the related percentage of nonperforming assets to total assets and gross loans. Generally, a loan is placed on nonaccrual status when it becomes 90 days past due as to principal or interest, or when the Company believes, after considering economic and business conditions and collection efforts, that the borrower’s financial condition is such that collection of the contractual principal or interest on the loan is doubtful. A payment of interest on a loan that is classified as nonaccrual is recognized as a reduction in principal when received. Following is a summary of our nonperforming assets, including nonaccruing TDRs.
(dollars in thousands) |  | September 30, 2018 |  | December 31, 2017
Commercial |  |  |  |  |
Owner occupied RE |  | $ | - |  | -
Non-owner occupied RE |  |  | 1,680 |  | 1,581
Construction |  |  | - |  | -
Business |  |  | 89 |  | 910
Consumer |  |  |  |  |
Real estate |  |  | 1,153 |  | 992
Home equity |  |  | 850 |  | 1,144
Construction |  |  | - |  | -
Other |  |  | - |  | 1
Nonaccruing troubled debt restructurings |  |  | 2,194 |  | 2,673
Total nonaccrual loans, including nonaccruing TDRs |  |  | 5,966 |  | 7,301
Other real estate owned |  |  | 117 |  | 242
Total nonperforming assets |  | $ | 6,083 |  | 7,543
Nonperforming assets as a percentage of: |  |  |  |  |
Total assets |  |  | 0.33% |  | 0.46%
Gross loans |  |  | 0.38% |  | 0.54%
Total loans over 90 days past due |  |  | 282 |  | 2,027
Loans over 90 days past due and still accruing |  |  | - |  | -
Accruing troubled debt restructurings |  | $ | 6,699 |  | 5,145
Impaired Loans The table below summarizes key information for impaired loans. The Company’s impaired loans include loans on nonaccrual status and loans modified in a TDR, whether on accrual or nonaccrual status. These impaired loans may have estimated impairment which is included in the allowance for loan losses. The Company’s commercial and consumer impaired loans are evaluated individually to determine the related allowance for loan losses.
|  |  |  |  | September 30, 2018
|  |  |  |  | Recorded investment |  |
|  |  |  |  |  |  | Impaired loans |  |
|  | Unpaid |  |  |  | with related |  | Related
|  | Principal |  | Impaired |  | allowance for |  | allowance for
(dollars in thousands) |  | Balance |  | loans |  | loan losses |  | loan losses
Commercial |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 2,843 |  | 2,779 |  | 452 |  | 75
Non-owner occupied RE |  |  | 6,341 |  | 3,046 |  | 2,245 |  | 742
Construction |  |  | - |  | - |  | - |  | -
Business |  |  | 3,791 |  | 2,583 |  | 1,924 |  | 843
Total commercial |  |  | 12,975 |  | 8,408 |  | 4,621 |  | 1,660
Consumer |  |  |  |  |  |  |  |  |
Real estate |  |  | 2,930 |  | 2,831 |  | 2,172 |  | 1,214
Home equity |  |  | 1,753 |  | 1,265 |  | 116 |  | 42
Construction |  |  | - |  | - |  | - |  | -
Other |  |  | 161 |  | 161 |  | 161 |  | 19
Total consumer |  |  | 4,844 |  | 4,257 |  | 2,449 |  | 1,275
Total |  | $ | 17,819 |  | 12,665 |  | 7,070 |  | 2,935
|  |  |  |  | December 31, 2017
|  |  |  |  | Recorded investment |  |
|  |  |  |  |  |  | Impaired loans |  |
|  | Unpaid |  |  |  | with related |  | Related
|  | Principal |  | Impaired |  | allowance for |  | allowance for
(dollars in thousands) |  | Balance |  | loans |  | loan losses |  | loan losses
Commercial |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 2,281 |  | 2,235 |  | 464 |  | 179
Non-owner occupied RE |  |  | 6,827 |  | 3,665 |  | 2,646 |  | 750
Construction |  |  | - |  | - |  | - |  | -
Business |  |  | 3,735 |  | 2,764 |  | 1,993 |  | 1,061
Total commercial |  |  | 12,843 |  | 8,664 |  | 5,103 |  | 1,990
Consumer |  |  |  |  |  |  |  |  |
Real estate |  |  | 2,062 |  | 2,037 |  | 2,037 |  | 1,379
Home equity |  |  | 2,010 |  | 1,575 |  | 680 |  | 286
Construction |  |  | - |  | - |  | - |  | -
Other |  |  | 171 |  | 170 |  | 170 |  | 22
Total consumer |  |  | 4,243 |  | 3,782 |  | 2,887 |  | 1,687
Total |  | $ | 17,086 |  | 12,446 |  | 7,990 |  | 3,677
The following table provides the average recorded investment in impaired loans and the amount of interest income recognized on impaired loans after impairment by portfolio segment and class.
|  | Three months ended |  | Three months ended
|  | September 30, 2018 |  | September 30, 2017
|  | Average |  | Recognized |  | Average |  | Recognized
|  | recorded |  | interest |  | recorded |  | interest
(dollars in thousands) |  | investment |  | income |  | investment |  | income
Commercial |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 2,786 |  | 41 |  | $ | 2,182 |  | 25
Non-owner occupied RE |  |  | 3,048 |  | 29 |  |  | 4,322 |  | 57
Construction |  |  | - |  | - |  |  | - |  | -
Business |  |  | 2,965 |  | 44 |  |  | 3,498 |  | 58
Total commercial |  |  | 8,799 |  | 114 |  |  | 10,002 |  | 140
Consumer |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 2,850 |  | 34 |  |  | 2,361 |  | 40
Home equity |  |  | 1,273 |  | 17 |  |  | 196 |  | 2
Construction |  |  | - |  | - |  |  | - |  | -
Other |  |  | 162 |  | 1 |  |  | 176 |  | 1
Total consumer |  |  | 4,285 |  | 52 |  |  | 2,733 |  | 43
Total |  | $ | 13,084 |  | 166 |  | $ | 12,735 |  | 183
|  | Nine months ended |  | Nine months ended |  |  |  | Year ended
|  | September 30, 2018 |  | September 30, 2017 |  | December 31, 2017
|  | Average |  | Recognized |  | Average |  | Recognized |  | Average |  | Recognized
|  | recorded |  | interest |  | recorded |  | interest |  | recorded |  | interest
(dollars in thousands) |  | investment |  | income |  | investment |  | income |  | investment |  | income
Commercial |  |  |  |  |  |  |  |  |  |  |  |  |  |
Owner occupied RE |  | $ | 2,792 |  | 103 |  | $ | 2,198 |  | 78 |  | 2,255 |  | 104
Non-owner occupied RE |  |  | 3,070 |  | 127 |  |  | 4,503 |  | 154 |  | 4,144 |  | 199
Construction |  |  | - |  | - |  |  | - |  | - |  | - |  | -
Business |  |  | 3,031 |  | 123 |  |  | 3,585 |  | 165 |  | 2,823 |  | 162
Total commercial |  |  | 8,893 |  | 353 |  |  | 10,286 |  | 397 |  | 9,222 |  | 465
Consumer |  |  |  |  |  |  |  |  |  |  |  |  |  |
Real estate |  |  | 2,871 |  | 114 |  |  | 2,370 |  | 73 |  | 2,047 |  | 69
Home equity |  |  | 1,283 |  | 61 |  |  | 196 |  | 4 |  | 1,576 |  | 97
Construction |  |  | - |  | - |  |  | - |  | - |  | - |  | -
Other |  |  | 164 |  | 4 |  |  | 178 |  | 4 |  | 174 |  | 6
Total consumer |  |  | 4,318 |  | 179 |  |  | 2,744 |  | 81 |  | 3,797 |  | 172
Total |  | $ | 13,211 |  | 532 |  | $ | 13,030 |  | 478 |  | 13,019 |  | 637
Allowance for Loan Losses The allowance for loan loss is management’s estimate of credit losses inherent in the loan portfolio. The allowance for loan losses is established as losses are estimated to have occurred through a provision for loan losses charged to earnings. Loan losses are charged against the allowance when management believes the uncollectibility of a loan balance is confirmed. Subsequent recoveries, if any, are credited to the allowance. The allowance for loan losses is evaluated on a regular basis by management and is based upon management’s periodic review of the collectability of the loans in light of historical experience, the nature and volume of the loan portfolio, adverse situations that may affect the borrower’s ability to repay, estimated value of any underlying collateral and prevailing economic conditions. This evaluation is inherently subjective as it requires estimates that are susceptible to significant revision as more information becomes available. The Company has an established process to determine the adequacy of the allowance for loan losses that assesses the losses inherent in the portfolio. While the Company attributes portions of the allowance to specific portfolio segments, the entire allowance is available to absorb credit losses inherent in the total loan portfolio. The Company’s process involves procedures to appropriately consider the unique risk characteristics of the commercial and consumer loan portfolio segments. For each portfolio segment, impairment is measured individually for each impaired loan. The Company’s allowance levels are influenced by loan volume, loan grade or delinquency status, historic loss experience and other economic conditions. The following table summarizes the activity related to the allowance for loan losses by commercial and consumer portfolio segments:
|  | Three months ended September 30, 2018
|  | Commercial |  | Consumer
|  | Owner |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | occupied |  | occupied |  |  |  |  |  |  |  | Real |  | Home |  |  |  |  |  |  |  |  |
(dollars in thousands) |  | RE |  | RE |  | Construction |  | Business |  | Estate |  | equity |  | Construction |  | Other |  | Total
Balance, beginning of period |  | $ | 2,699 |  | 3,581 |  | 544 |  |  | 3,849 |  |  | 3,446 |  | 1,431 |  |  | 282 |  |  | 268 |  |  | 16,100 |
Provision for loan losses |  |  | 71 |  | 379 |  | (44 | ) |  | (17 | ) |  | 89 |  | (93 | ) |  | (7 | ) |  | 22 |  |  | 400 |
Loan charge-offs |  |  | - |  | - |  | - |  |  | (536 | ) |  | - |  | - |  |  | - |  |  | (20 | ) |  | (556 | )
Loan recoveries |  |  | - |  | 25 |  | - |  |  | 89 |  |  | 1 |  | 80 |  |  | - |  |  | 1 |  |  | 196 |
Net loan charge-offs |  |  | - |  | 25 |  | - |  |  | (447 | ) |  | 1 |  | 80 |  |  | - |  |  | (19 | ) |  | (360 | )
Balance, end of period |  | $ | 2,770 |  | 3,985 |  | 500 |  |  | 3,385 |  |  | 3,536 |  | 1,418 |  |  | 275 |  |  | 271 |  |  | 16,140 |
Net charge-offs to average loans (annualized) |  | 0.09% |
Allowance for loan losses to gross loans |  | 1.00% |
Allowance for loan losses to nonperforming loans |  | 270.53% |
|  | Three months ended September 30, 2017
|  | Commercial |  | Consumer
|  | Owner |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | occupied |  | occupied |  |  |  |  |  |  |  | Real |  | Home |  |  |  |  |  |  |  |  |
(dollars in thousands) |  | RE |  | RE |  | Construction |  | Business |  | Estate |  | equity |  | Construction |  | Other |  | Total
Balance, beginning of period |  | $ | 2,964 |  |  | 2,981 |  | 350 |  |  | 3,857 |  |  | 3,061 |  | 1,608 |  |  | 328 |  |  | 295 |  |  | 15,444 |
Provision for loan losses |  |  | (141 | ) |  | 634 |  | (122 | ) |  | 213 |  |  | 160 |  | (196 | ) |  | (47 | ) |  | (1 | ) |  | 500 |
Loan charge-offs |  |  | - |  |  | - |  | - |  |  | (388 | ) |  | - |  | - |  |  | - |  |  | (11 | ) |  | (399 | )
Loan recoveries |  |  | - |  |  | 1 |  | - |  |  | 31 |  |  | 1 |  | - |  |  | - |  |  | 1 |  |  | 34 |
Net loan charge-offs |  |  | - |  |  | 1 |  | - |  |  | (357 | ) |  | 1 |  | - |  |  | - |  |  | (10 | ) |  | (365 | )
Balance, end of period |  | $ | 2,823 |  |  | 3,616 |  | 228 |  |  | 3,713 |  |  | 3,222 |  | 1,412 |  |  | 281 |  |  | 284 |  |  | 15,579 |
Net charge-offs to average loans (annualized) |  | 0.11% |
Allowance for loan losses to gross loans |  | 1.17% |
Allowance for loan losses to nonperforming loans |  | 278.05% |
|  | Nine months ended September 30, 2018
|  | Commercial |  | Consumer
|  | Owner |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | occupied |  | occupied |  |  |  |  |  |  |  | Real |  | Home |  |  |  |  |  |  |  |
(dollars in thousands) |  | RE |  | RE |  | Construction |  | Business |  | Estate |  | equity |  | Construction |  | Other |  | Total
Balance, beginning of period |  | $ | 2,534 |  |  | 3,230 |  |  | 325 |  |  | 3,848 |  |  | 3,495 |  |  | 1,600 |  |  | 210 |  | 281 |  |  | 15,523 |
Provision for loan losses |  |  | 236 |  |  | 857 |  |  | 175 |  |  | (31 | ) |  | 114 |  |  | (157 | ) |  | 65 |  | 41 |  |  | 1,300 |
Loan charge-offs |  |  | - |  |  | (234 | ) |  | - |  |  | (655 | ) |  | (76 | ) |  | (140 | ) |  | - |  | (54 | ) |  | (1,159 | )
Loan recoveries |  |  | - |  |  | 132 |  |  | - |  |  | 223 |  |  | 3 |  |  | 115 |  |  | - |  | 3 |  |  | 476 |
Net loan charge-offs |  |  | - |  |  | (102 | ) |  | - |  |  | (432 | ) |  | (73 | ) |  | (25 | ) |  | - |  | (51 | ) |  | (683 | )
Balance, end of period |  | $ | 2,770 |  |  | 3,985 |  |  | 500 |  |  | 3,385 |  |  | 3,536 |  |  | 1,418 |  |  | 275 |  | 271 |  |  | 16,140 |
Net charge-offs to average loans (annualized) |  | 0.06% |
|  | Nine months ended September 30, 2017
|  | Commercial |  | Consumer
|  | Owner |  | Non-owner |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
|  | occupied |  | occupied |  |  |  |  |  |  |  | Real |  | Home |  |  |  |  |  |  |  |
|  | RE |  | RE |  | Construction |  | Business |  | Estate |  | equity |  | Construction |  | Other |  | Total
Balance, beginning of period |  | $ | 2,843 |  |  | 2,778 |  |  | 295 |  |  | 4,123 |  |  | 2,780 |  |  | 1,475 |  |  | 252 |  | 309 |  |  | 14,855 |
Provision for loan losses |  |  | (20 | ) |  | 1,257 |  |  | (67 | ) |  | 31 |  |  | 359 |  |  | (75 | ) |  | 29 |  | (14 | ) |  | 1,500 |
Loan charge-offs |  |  | - |  |  | (433 | ) |  | - |  |  | (518 | ) |  | - |  |  | - |  |  | - |  | (11 | ) |  | (962 | )
Loan recoveries |  |  | - |  |  | 14 |  |  | - |  |  | 77 |  |  | 83 |  |  | 12 |  |  | - |  | - |  |  | 186 |
Net loan charge-offs |  |  | - |  |  | (419 | ) |  | - |  |  | (441 | ) |  | 83 |  |  | 12 |  |  | - |  | (11 | ) |  | (776 | )
Balance, end of period |  | $ | 2,823 |  |  | 3,616 |  |  | 228 |  |  | 3,713 |  |  | 3,222 |  |  | 1,412 |  |  | 281 |  | 284 |  |  | 15,579 |
Net charge-offs to average loans (annualized) |  | 0.08% |
The following table disaggregates the allowance for loan losses and recorded investment in loans by impairment methodology.
|  | September 30, 2018
|  | Allowance for loan losses |  | Recorded investment in loans
(dollars in thousands) |  | Commercial |  | Consumer |  | Total |  | Commercial |  | Consumer |  | Total
Individually evaluated |  | $ | 1,660 |  | 1,275 |  | 2,935 |  | 8,408 |  | 4,257 |  | 12,665
Collectively evaluated |  |  | 8,990 |  | 4,225 |  | 13,205 |  | 1,075,641 |  | 531,895 |  | 1,607,536
Total |  | $ | 10,640 |  | 5,500 |  | 16,140 |  | 1,084,049 |  | 536,152 |  | 1,620,201
|  | December 31, 2017
|  | Allowance for loan losses |  | Recorded investment in loans
|  | Commercial |  | Consumer |  | Total |  | Commercial |  | Consumer |  | Total
Individually evaluated |  | $ | 1,990 |  | 1,687 |  | 3,677 |  | 8,664 |  | 3,782 |  | 12,446
Collectively evaluated |  |  | 7,947 |  | 3,899 |  | 11,846 |  | 898,289 |  | 476,335 |  | 1,374,624
Total |  | $ | 9,937 |  | 5,586 |  | 15,523 |  | 906,953 |  | 480,117 |  | 1,387,070

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